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The Two Sides Are Now Absurdly Close On A Fiscal Cliff Deal — Here's The Latest Offer

The Democrats made several key concessions yesterday in the Fiscal Cliff negotiations.

As a result, the two sides are absurdly close together. If we don't get a deal at this point, the entire country will be justified in being outraged.

Here's the Democrats' latest offer, as reported by Lori Montgomery and Paul Kane of the Washington Post:

* The Democrats agreed to raise the income threshold for tax increases to $450,000 a year (couples) from the prior $250,000. The Republicans are insisting on $550,000 threshold. This is a massive tax cut for almost the entire country relative to the rates that will otherwise take effect on January 1. (So agree on $500,000 already and call it a day.)

* However, to the Republicans' chagrin, the Democrats insist on raise capital gains and dividend taxes to 20% on households over $250,000 and reducing some of the allowable deductions. Importantly, this, too, is a massive tax cut relative to the scheduled changes, which would boost dividend taxes to 40% on incomes over $250,000.

* The Democrats conceded on the estate tax: They'll keep the threshold for taxable estates at $5 million, with a 35% rate over that level. This, again, is a massive tax cut over current law, in which the threshold will drop to $1 million with a much higher rate.

* The Democrats' offer would permanently protect middle-class households from the Alternative Minimum Tax. No details on how this would work.

* On the spending side, the Democrats' offer would delay the "sequester" (automatic spending cuts) until 2015. This would cost an estimated $200 billion. But it would avoid the cuts to the military budget that the Republicans are so desperate to avoid.

* The Democrats would also extend unemployment benefits for a year, extend farm subsidies for a year, and avoid a 27% cut in Medicare payments to doctors. The Republicans say they want offsets to these spending cuts.

When you boil all that down, the two sides are absurdly close.

The Republicans say they want spending cuts to offset the postponement of the sequester spending cuts, but the Republicans do not appear to have proposed anything in particular. Also, the postponement will only cost $200 billion over two years, which is not much on a government budget of $4 trillion a year. And the postponement of the cuts will avoid a shock to the weak economy, which will likely help on the tax revenue side.

On the tax side, the country will be getting a massive tax cut over the new taxes that will take effect on January 1. The current low income and investment tax rates for 98% of the country would be extended, and the income tax rates would be extended on even more households. The fact that the two sides are still haggling over whether the threshold for a modest income tax increase should be $450,000 or $550,000 is almost comical.

(At some point, taxes are going to have to rise modestly for everyone. If it's this hard to raise taxes even on the richest 1% of the country, imagine what the fight will be like when this increase will hit all Americans).

It's worth noting that this proposed deal would be good for the economy, especially relative to the Fiscal Cliff. The postponement of most of the tax hikes and spending increases would preserve the status quo, avoiding the austerity shock that will otherwise hit growth. The deal would likely boost the deficit over the next two years, but, again, neither side is arguing that the Fiscal Cliff would be preferable to a deal.

With less than 24 hours to go before the fiscal cliff deadline, lawmakers are still working furiously to try to hammer out a deal to avoid the package of tax hikes and budget cuts that is set to go into effect at midnight.

A rollercoaster weekend of negotiations ended at an impasse Sunday, after talks stalled for hours over Republican insistence that a deal must include cuts to Social Security. GOP leaders took that provision off the table Sunday night, but not before the Senate adjourned without a vote.

Reports now indicate that both sides are very close to a deal, but it's still unclear whether there will be enough time to pass a deal before the deadline hits.

The Senate reconvenes today at 11 a.m. We'll be updating below with all of the developments.

11:07 AM | The Senate is back in session...

11:09 AM | Harry Reid: Negotiations Are Continuing As We Speak, Still Issues To Be Resolved

Senate Majority Leader Harry Reid took the floor briefly to inform lawmakers that negotiations are still ongoing, but that they don't have anything to vote on yet.

"There are still some issues that need to be resolved before we can bring legislation to the floor," Reid said. "Negotiations are continuing as we speak."

"We really are running out of time," he added. "Americans are threatened with a tax hike in a few hours."

11:23 AM | Sen. Tom Harkin (D-ID) just blasted Democrats for giving up the farm on the fiscal cliff.

Harkin, a staunch liberal, took the Senate floor after Reid, and blasted his party for making too many concessions on the fiscal cliff - specifically by raising the threshold for extending the Bush tax cuts to $450,000, up from the $250,000 that President Barack Obama campaigned on.

"This looks like a very bad deal."

Harkin's sentiments have been echoed by many Democrats, who are frustrated with last night's developments. After talks failed in the Senate yesterday, fiscal cliff negotiations turned into a backroom affair between Senate Minority Leader Mitch McConnell and Vice President Joe Biden. According to reports, Biden also agreed to concede to Republican demands on the estate tax, in addition to agreeing to raise the income threshold for the Bush tax cuts.

Washington Post blogger Ezra Klein has a pretty brutal takedown of the White House's leadership on the fiscal cliff. The gist of his argument is that while Obama entered the fiscal cliff negotiations with the apparent advantage, he has caved every step of the way.

Here's the key passage:

The Republicans plan to say that now that they broke their pledge and voted for a tax increase, they'll insist on a dollar of spending cuts for every dollar of debt-ceiling increase - the so-called "Boehner rule". The White House plans to insist that it won't negotiate over the debt ceiling at all.

Republicans I've spoken to laugh at this bluster. Obama is already negotiating over the debt ceiling, they point out. He began the fiscal cliff negotiations by saying he wanted a permanent solution to the debt ceiling. Then it was a two-year increase in the debt limit. Now he's going to sign off on a mini-deal that doesn't increase the debt ceiling at all. Does that really sound like someone who's going to hold firm when faced with global economic chaos? The White House always talks tough at the beginning of negotiations and then always folds at the end. Republicans are confident that the debt ceiling will be no different.

Slate blogger Matt Yglesias has a similar take here. The White House, Ygelesias argues, lost any credibility it had by putting the debt ceiling on the table despite insisting that Obama wouldn't negotiate on raising the debt limit. Even worse, by including the debt ceiling in a "grand bargain" package delayed until 2015 , the Obama White House is actually institutionalizing the practice of negotiating on the debt ceiling.

12:08 PM | Paul Krugman has also chimed in...
The New York Times columnist just blasted Obama for being the worst poker player ever >

12:27 PM | Major Democrat drama over the sequester

CNN reporter Dana Bash tweets that Democrats are pushing hard against Republican demands over the sequester, the package of dramatic budget cuts scheduled to go into effect at midnight.

According to Bash, Republicans are pushing for the fiscal cliff deal to include a three month delay of the sequester, and want to use the Chained CPI to offset the cuts. Democrats want to push back the sequester until 2015, and use new revenues to pay for the cuts.

Now Democrats are saying they will block any bill that includes a three-month delay, part of a ploy to keep Vice President Joe Biden from agreeing to the measure.

“They have the guns and therefore we are for peace and for reformation through the ballot. When we have the guns then it will be through the bullet.” - Saul Alinsky, quoting Lenin

“I wanted [Jimmy] Carter in and I wanted [Ford] out,” comedian Chevy Chase would later admit of his mocking Ford impersonation on "Saturday Night Live", “and I figured look, we're reaching millions of people every weekend, why not do it."

Hooray, we passed something in the Senate that amounts to, again, kicking a chunk of the can down the road. This time for only two months. I'm sure they'll come up with a long-lasting compromise by then on spending cuts.

Hooray, we passed something in the Senate that amounts to, again, kicking a chunk of the can down the road. This time for only two months. I'm sure they'll come up with a long-lasting compromise by then on spending cuts.

In 1982, President Reagan was promised $3 in spending cuts for every $1 in tax hikes,” Americans for Tax Reform says of those two incidents. “The tax hikes went through, but the spending cuts did not materialize. President Reagan later said that signing onto this deal was the biggest mistake of his presidency.

In 1990, President George H.W. Bush agreed to $2 in spending cuts for every $1 in tax hikes. The tax hikes went through, and we are still paying them today. Not a single penny of the promised spending cuts actually happened.”

__________________

“They have the guns and therefore we are for peace and for reformation through the ballot. When we have the guns then it will be through the bullet.” - Saul Alinsky, quoting Lenin

“I wanted [Jimmy] Carter in and I wanted [Ford] out,” comedian Chevy Chase would later admit of his mocking Ford impersonation on "Saturday Night Live", “and I figured look, we're reaching millions of people every weekend, why not do it."

In 1982, President Reagan was promised $3 in spending cuts for every $1 in tax hikes,” Americans for Tax Reform says of those two incidents. “The tax hikes went through, but the spending cuts did not materialize. President Reagan later said that signing onto this deal was the biggest mistake of his presidency.

In 1990, President George H.W. Bush agreed to $2 in spending cuts for every $1 in tax hikes. The tax hikes went through, and we are still paying them today. Not a single penny of the promised spending cuts actually happened.”

That's how I derived my statement. History is yet to repeat itself again and the asses of tax-paying American citizens will be burned.

Hooray, we passed something in the Senate that amounts to, again, kicking a chunk of the can down the road. This time for only two months. I'm sure they'll come up with a long-lasting compromise by then on spending cuts.

you guys are all babies. boohoo you have to pay a little bit more money for the betterment of the country. $579 for under $50k? who cares? even $500k - $1M is only an average increase of around $14k per year, boohoo you have to buy your daughter a 3 series instead of a 5 series. People over a million a year will see an increase of $170,341 on average, making them taking the the lion's share of increases. boohoo... you can only buy 10 hours instead of 15 hours on your jet share this year.

you guys are all babies. boohoo you have to pay a little bit more money for the betterment of the country. $579 for under $50k? who cares? even $500k - $1M is only an average increase of around $14k per year, boohoo you have to buy your daughter a 3 series instead of a 5 series. People over a million a year will see an increase of $170,341 on average, making them taking the the lion's share of increases. boohoo... you can only buy 10 hours instead of 15 hours on your jet share this year.

I'm not complaining about taxes going up. I'm fine paying more if we're actually cutting the deficit. However, I REFUSE to sit back and watch the government take more in taxes while also INCREASING their expenditures. That DOESN'T solve the problem.

you guys are all babies. boohoo you have to pay a little bit more money for the betterment of the country. $579 for under $50k? who cares? even $500k - $1M is only an average increase of around $14k per year, boohoo you have to buy your daughter a 3 series instead of a 5 series. People over a million a year will see an increase of $170,341 on average, making them taking the the lion's share of increases. boohoo... you can only buy 10 hours instead of 15 hours on your jet share this year.

Sounds like you manage personal finances well.

Nobody is complaining about tax increases...it is needed. We want spending cuts. Increase inflow and decrease outflow and we'll knock down the deficit better.